Republican supports new tax

There's a man-bites-dog headline for you. Today's Tom Friedman NYT column features an interview with SC GOP Sen. Lindsey Graham who apparently supports a carbon tax. This tax would create incentives for energy conservation and pollution abatement, as well as making us less dependent on foreign oil. Helps with global warming too, if you still believe that. More jobs, cleaner air, and a thumb in the eye to petroleum-supported autocracies (Russia, Venezuela, Iran) who have not been playing nice in world affairs -- what's not to like? One also could use the proceeds of such a tax to reduce the federal budget deficit, or make it budget-neutral by making off-setting tax cuts. In economic terms this would be far superior to the cap-and-trade bill passed by the House last year. Stay tuned, this could get interesting.

Why Greece matters

Good column by Washington Post economist Robert Samuelson about the economic situation in Greece and how it is affecting the euro. In a nutshell if Greece had its own currency it would be falling in value and interest rates would be rising reflecting the growing risk that Greece will default on bonds that must be paid off this spring. Other EU countries have to decide whether to bailout the Greeks and thus stabilize the euro versus cutting them loose to revert to their own currency. Greece's situation is not unique to the EU; it is shared by Portugal, Ireland, Italy and Spain (the five countries now have the unwanted acronym of PIIGS). States such as California and Michigan may very well be creating a similar problem here in the US in the very near term.

Truth in advertising in academe

I do not normally repeat blog items from elsewhere, but today my NC State colleague Craig Newmark links to a must-read piece for all would-be humanities PhDs from the Chronicle of Higher Education concerning the woeful job market these students will face upon graduation. Although I deal with many reporting requirements and regulations as associate dean (our b-school gets an accreditation visit next week), this recommendation needs further airing:

there is still almost no way—apart from the rumor mill to which they do not really have access—for students to gather some of the most crucial information about graduate programs: the rate of attrition, the average amount of debt at graduation, and, most important, the placement of graduates (differentiating between adjunct, lecturer, visiting, tenure-track positions, and nonacademic positions). Programs often claim that graduates who are working as adjuncts or visiting faculty members are successfully placed in the profession.

Most departments will never willingly provide that information because it is radically against their interest to do so. I can see no way for that information to become available unless it becomes part of accreditation or rankings in publications such as U.S. News and World Report.

Services and global trade

Michael Cox, an econ prof at SMU's b-school, has a stimulating NYT op-ed today on the role of services in global trade. All too many discussions of our trade deficit focus on goods (including the President's call to "export more of our goods" in his State of the Union speech), where we do indeed run quite a deficit. However, the US runs a substantial trade surplus on traded services, especially travel, education, media, consulting, and finance. Cox argues that these are the sectors where the US is likely to have the greatest success in opening up new export opportunities.

The depression in construction

Harvard's Ed Glaeser has a great Economix blog entry today on the NYT site (enjoy it while you can before they start charging in 2011) about the very stark situation in the construction industry. Although times are grim in financial services, the unemployment rate there is a "mere" 6.6 percent, whereas it is 24.7 percent in construction. For comparison's sake, the overall unemployment rate maxed out at 25% in the Great Depression. In addition to overbuilding in previous years, construction is being held back by a decline in the rate of household formation. Until young men and women start moving out of their parent's houses, it will be difficult to sell off the inventory of vacant units.

I have had a long-standing interest in construction for two reasons: (1) I actually worked in construction one summer to pay for graduate school because the wages were significantly higher than for indoor jobs and (2) I wrote a number of papers in top academic journals in the 1980s about construction labor markets. The sector provides an opportunity for (mostly) men with limited education and experience to gradually become skilled and well-paid. In retrospect more of the stimulus package probably should have been allocated in this direction. On the other hand Glaeser argues for payroll tax reductions -- a great idea overall but one that is unlikely to provide any special relief for the construction industry.

Long term impact of Great Recession

Stimulating read in this month's Atlantic by Don Peck regarding the impact the Great Recession is likely to have on labor markets and society. Points that I find hard to argue: (1) there will be a permanent loss of jobs in finance and construction; (2) there are big concerns about the environment for innovation; (3) young adults face a permanent reduction in lifetime earnings; (4) men are likely to become more marginalized; and (5) some communities that were in good shape as late as 2007 will be in very bad shape soon. All of these points are backed by interviews with researchers who know their stuff. However, Peck ends the article by making an emotional plea for more government spending (and higher taxes if necessary) to create more jobs; no interviews with experts to be seen.

Market for MBAs turning around?

That's what Business Week says, so I hope they are correct. Many schools are saying things are better than last year, but then last year was pretty terrible. At NC State we have more companies lined up for campus visits than we did last spring. Also, the joint Duke-UNC-NCState-Wake MBA career fair will take place next week; we had to cancel it last year because not enough companies showed interest.

Tax policy in a service economy

Services now account for over three-fourths of GDP, and the percentage keeps rising. This has dire consequences for states that depend on sales taxes for revenue. The North Carolina General Assembly struggled with this issue last year and was not able to come up with a resolution. States face a simple choice: broaden the tax base to include services and charge a lower, less distortionary rate or continue to raise the tax rate on an ever shrinking base. Yesterday's WSJ reports how various states are addressing this issue. Of course all taxes have some distortionary effects, but lower rates and broader bases are generally regarded as pluses.

Keynes vs. Hayek smackdown

Kudos to my colleague Jim Yuill for sharing this YouTube video of rappers representing the ideas of Keynes and Hayek. Not likely to put Eminem and Jay-Z out of business, but the summary of the ideas is actually pretty good. Markets vs. government -- an age-old question.

Obamacare: an insurance CEO's view

Today's WSJ features a long interview with WellPoint's CEO Angela Braly. Whether you agree with Braly or not, she does a particularly effective job in presenting her point of view. She does a good job of explaining what would have happened in the insurance market if there was not an effective mechanism to force everyone to enroll. She also suggests that consumers need to have both the incentive and the information (through data analytics) to make cost-effective decisions.

Signs of a jobs revival?

Some encouraging news in the jobs report yesterday: unemployment down below 10 percent, manufacturing jobs up for first time in over two years, and a slight shift from part-time to full-time work. Not all of the news was great; jobs figures for 2009:IV were revised downward.

At the MBA deans meeting last week, all of the schools were saying this is the toughest market they have ever faced. The placement rate at NC State is running about the same as elsewhere.

Challenges at NYU Stern

Business Week online reports the challenges new Dean Peter Henry faces at the Stern School of Business at NYU. Henry has his undergraduate degree from UNC-Chapel Hill and a PhD from MIT, along with a Rhodes Scholarship at Oxford. Finance is by far the largest concentration at NYU, so Dean Henry faces the challenge of re-orienting the Stern MBA toward a larger range of employers. The first challenge will be for the career center to reach out to companies outside of financial services. But the bigger challenge will involve the faculty -- how does the MBA program re-invent its courses and curriculum?

Volcker rule -- great in theory but ...

Recent piece in WSJ finance section about how it might be difficult in practice to ban banks from trading on their own accounts. Sometimes a bank customer wants to sell a security and there is no buyer. Now the bank can buy the asset and sell another one to, in effect, create a market. If the new legislation is not thought through carefully enough, this sort of non-proprietray trading may be banned as well.